Potential beneficiary from the upgraders' market. In comparison with other property developers, CDL is better-positioned to benefit from the demand from HDB upgraders as it has exposure of ~52.5% of its attributable GFA of its landbank to the mass market segment. Some of these sites had been acquired at low prices and the low breakeven cost would give CDL the much-needed flexibility in pricing its new launches under current weak market condition.
Default risk under control. Only about 30% of their units sold by CDL were under the Deferred Payment Scheme (DPS) and CDL has a policy of collecting 20% as down payment from buyers under this scheme; DPS is not extended to sub-sales. We also think that it is unlikely for buyers to just walk away from their purchases as buyers would face legal action for breach of breach of their contractual obligations.
M&C remains financially self-sufficient. Subsidiary M&C's financial position remains strong, with net gearing ratio of 0.16x. With undrawn committed bank facilities of £188.6m and cash-generative operations, we believe that M&C can remain self-sufficient on its own without tapping on its parent, CDL, for additional resources.
Building up war-chest for acquisition. CDL had been active in building up its acquisition war-chest recently, having increased the limit of its Medium Term Note (MTN) Programme from S$700m to S$1,500m in December 08 and raised S$100m from its S$1,000m Islamic Trust Certificate (ITC) Programme in January. CDL is currently in the process of issuing the second tranche of the ITC and expects to raise another S$300m-400m from the programme.
Reinitiate coverage on CDL with HOLD. We ascribe a 30% discount to our valuation of CDL's development profits and investment properties. For its investments in M&C and City e-Solutions, we peg their valuations to their current market capitalizations without any discount. As such, our fair value of CDL is pegged at S$5.43. We believe that CDL is well-positioned to ride through this downturn but for now, upside to share price looks limited and we reinitiate coverage on CDL with a HOLD rating.
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